RELATED PARTY TRANSACTIONS

6 Months Ended

Dec. 31, 2021

NOTE 6 – RELATED PARTY TRANSACTIONS

Advisory Agreements Effective Through December 31, 2020:

Under the Amended and Restated Investment Advisory Agreement, the Company paid the Adviser a fee for its services consisting of three components - a portfolio structuring fee, a base management fee, and a subordinated incentive fee.

The portfolio structuring fee was for the Adviser’s initial work performed in identifying, evaluating, and structuring the acquisition of assets. The fee equaled 3.0% of the gross invested capital (“Gross Invested Capital”), which equals the number of shares issued, multiplied by the offering price of the shares sold ($10.00, regardless of whether or not shares were issued with volume or commission discounts), plus any borrowed funds. These services were performed on an ongoing basis in anticipation of deploying new capital, generally within 15 days of the receipt of capital. Therefore, this fee was expensed in the period the capital was accepted.

The base management fee was calculated based on the Company’s Gross Invested Capital plus any borrowing for investment purposes. The base management fees ranged from 1.5% to 3.0%, depending on the level of Gross Invested Capital.

The subordinated incentive fee had two parts—income and capital gains. The incentive fee components (other than during liquidation) were designed so that neither the income incentive fee nor the capital gains incentive fee was payable to the Adviser unless our stockholders had first received dividends at a rate of at least 7.0% per annum for the relevant measurement period (a fiscal quarter, for the income incentive fee; a fiscal year, for the capital gains incentive fee).

The income incentive fee (the “Income Fee”) was calculated and payable quarterly in arrears as follows: (i) the sum of preliminary net investment income for each fiscal quarter since the effective date of the Amended and Restated Investment Advisory Agreement (October 1, 2017) exceeding 7% of the “Contributed Capital” (which equals the number of shares issued multiplied by the maximum public offering price at the time such shares were sold, regardless of whether or not shares were issued with volume or commission discounts or through the DRIP, as such amount is computed from time to time) on an annualized basis up to 8.75% of Contributed Capital; and (ii) 20.0% of our preliminary net investment income for each fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate; minus (iii) the sum of all previously paid income incentive fees since the effective date, plus (iv) any incremental income incentive fee payable resulting from the reanalysis after calculation of the capital gains incentive fee.

The capital gains incentive fee (the “Capital Gains Fee”) was calculated and payable in arrears as of the end of each fiscal year as follows: (i) the sum of all “capital gains” (calculated as net realized capital gains less unrealized capital depreciation) for each fiscal year after the effective date exceeding 7% of the Contributed Capital on an annualized basis up to 8.75% of Contributed Capital, which thresholds were reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); and (ii) 20.0% of all capital gains for each fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate, which threshold was reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); minus (iii) the sum of all previously paid income incentive fees since the effective date and prior to the end of such fiscal year; less (iv) the aggregate amount of all capital gains incentive fees paid in prior fiscal years ending after the effective date. To the extent that such calculation would result in a capital gains incentive fee that exceeds 20% of all realized capital gains for the measurement period, the capital gains incentive fee was capped so that under no circumstance would it have exceeded 20% of the realized capital gains for the measurement period.

Advisory Agreements Effective January 1, 2021:

As discussed in Note 1, on January 26, 2021, the board of directors of the Company approved, effective January 1, 2021, two advisory agreements, an Advisory Management Agreement with the Real Estate Adviser and the Amended and Restated Investment Advisory Agreement with the Investment Adviser.

The terms of the Advisory Management Agreement with the Real Estate Adviser provide that the Company will continue to pay an Asset Management Fee on essentially the same terms as it was paying the Investment Adviser prior to 2021, namely based upon a percentage of Invested Capital (3% of the first $20 million, 2% of the next $80 million, and 1.5% over $100 million). Invested Capital is equal to the amount calculated by multiplying the total number of outstanding shares, preferred shares, and the partnership units (units in our operating partnership issued by us and held by persons other than us) issued by the Company by the price paid for each or the value ascribed to each in connection with their issuance. The Advisory Management Agreement also provides for a 2.5% Acquisition Fee on new (non-security) purchases, subject to certain limitations designed to eliminate incentives to “churn” Company assets. The new Advisory Management Agreement also provides for an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. The Company will not pay any Property Management Fees, Debt Financing Fees, or Disposition Fees to the Real Estate Adviser.

The Investment Adviser will receive an annual fee equal to $100 for providing the investment advice to the Company as to its securities portfolio under the Amended and Restated Investment Advisory Agreement.

During the three and six months ended December 31, 2021, the Company incurred the asset management fees of $677,622 and $1,354,174, respectively.

During the three and six months ended December 31, 2020, the Company incurred the base management fees of $677,490 and $1,335,376, respectively. The portfolio structuring fees for the three and six months ended December 31, 2020 were $1,827 and $6,679, respectively, under the previous advisory agreement with the Investment Adviser.

The asset management and base management fees mentioned above were based on the following quarter ended Invested Capital segregated in two columns based on the annual fee rate:

Asset/Base Management Fee Annual %		3.0%		2.0%		1.5%	Total Invested Capital

Quarter ended:
September 30, 2021	$	20,000,000	$	80,000,000	$	33,927,634	$	133,927,634
December 31, 2021	$	20,000,000	$	80,000,000	$	34,242,127	$	134,242,127

Quarter ended:
September 30, 2020	$	20,000,000	$	80,000,000	$	28,769,486	$	128,769,486
December 31, 2020	$	20,000,000	$	80,000,000	$	33,997,317	$	133,997,317

During the three and six months ended December 31, 2021, the Company did not incur or accrue any incentive management fee under the new Advisory Management Agreement.

Similarly, the Company did not accrue Income Fee or Capital Gains Fee for the three and six months ended December 31, 2020, under the previous advisory agreement with the Investment Adviser.

Organization and Offering Costs Reimbursement:

As provided in the previous advisory agreement with the Investment Adviser and the prospectus of the Company, offering costs incurred and paid by the Company in excess of $1,650,000 on the third public offering were reimbursed by the Investment Adviser except to the extent that 10% in broker fees are not incurred (the “broker savings”). In such case, the broker savings were available to be paid by the Company for marketing expenses or other non‑cash compensation. Total offering costs incurred on the third public offering as of the termination date of October 31, 2020 were $624,188 which were below the reimbursement threshold. Therefore, there were no amounts reimbursable from the Investment Adviser as of the offering termination date.

Of the cumulative offering costs incurred on the third public offering by the Company as of the offering termination date of October 31, 2020, MacKenzie had paid on behalf of the Company a total of $346,349. The Company had fully reimbursed MacKenzie as of June 30, 2021.

The third public offering terminated on October 31, 2020. Therefore, the remaining deferred offering costs that had not been amortized as of the termination date were fully expensed as of December 31, 2020. Therefore, there were no amortization of these deferred costs for the three and six months ended December 31, 2021. Total amortization of these deferred costs for the three and six months ended December 31, 2020, were $200,126 and $342,015, respectively.

As of December 31, 2021, the Company has incurred $422,624 of offering costs on its offering circular to sell the preferred stock. These costs are recorded as a reduction to capital in excess of par value in the consolidated balance sheet as of December 31, 2021. Of these total offering costs, MacKenzie had paid $242,409 on behalf of the Company. Therefore, the amount has been recorded as due to related entities in the consolidated balance sheet as of December 31, 2021.

Administration Agreement:

Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the independent directors’ approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company’s Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff.

Effective November 1, 2018, transfer agent services are also provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost reimbursement) is being paid by the Company to MacKenzie for this service.

The administrative cost reimbursements for the three and six months ended December 31, 2021, were $152,400 and $304,800, respectively. The administrative cost reimbursements for the three and six months ended December 31, 2020, were $155,200 and $310,400, respectively. Transfer agent services cost reimbursement for the three and six months ended December 31, 2021, were $26,600 and $53,201, respectively. Transfer agent services cost reimbursement for the three and six months ended December 31, 2020, were $30,800 and $61,600, respectively.

The table below outlines the related party expenses incurred for the six months ended December 31, 2021 and 2020, and unpaid as of December 31, 2021, and June 30, 2021.

	Six Months Ended				Unpaid as of
Types and Recipient	December 31, 2021		December 31, 2020		December 31, 2021		June 30, 2021

Asset management fees- the Real Estate Adviser	$	1,354,174	$	-	$	-	$	-
Base management fees- the Investment Adviser		-		1,335,376		-		-
Portfolio structuring fees- the Investment Adviser		-		6,679		-		-
Administrative cost reimbursements- MacKenzie		304,800		310,400		-		-
Transfer agent cost reimbursements - MacKenzie		53,201		61,600		-		-
Organization & Offering Cost⁽²⁾ - MacKenzie		242,409		46,136		81,763		-
Other expenses⁽¹⁾- MacKenzie		-		-		-		1,937
Due to related entities					$	81,763	$	1,937

⁽¹⁾ Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.

⁽²⁾ Offering costs paid by MacKenzie - discussed in Note 6 under organization and offering costs reimbursements.

Affiliated Investments:

Coastal Realty Business Trust (“CRBT”):

CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Company owns two series of CRBT and is the only beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants. The Company and TRS are the sole beneficiaries of the following series as of December 31, 2021, and June 30, 2021:

•	CRBT, REEP, Inc.--A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.